Reynolds American Inc. agreed to acquire Lorillard Inc. in an ambitious and risky $25 billion deal that would reshape the landscape of U.S. tobacco and make Newport menthols an even more formidable rival to Altria Group Inc.'s top-selling Marlboro.

The transaction would add Lorillard's Newport, the No. 2 U.S. cigarette brand, to Reynolds's portfolio, which includes Camel and Pall Mall cigarettes, giving Reynolds a commanding...